How This Real Estate Investor is Betting on an AI Boom (It’s Not Data Centers) | Tom Shapiro

Episode Summary

Executive Summary: GTIS Partners’ Tom Shapiro argues that real estate is partly an inflation hedge, but the bigger risks are employment, household formation, supply, and AI-driven disruption. He’s bullish on San Francisco apartments and logistics, cautious on overheated Sun Belt markets, and sees Brazil as a complex but attractive long-term opportunity despite currency and policy volatility.

Main Topics: Macro Risks: Inflation vs. Employment and AI (Priority: 5/5): Shapiro says inflation matters, but job losses and AI-driven efficiency gains are more important for housing demand because employment drives household formation and occupancy. Housing Supply, Household Formation, and Immigration (Priority: 5/5): He links weak household formation to fewer jobs and reduced immigration, arguing that immigration also supports construction labor and rental demand. Policy and Affordability: Build-to-Rent and Mortgage Rates (Priority: 4/5): He criticizes a housing bill provision that could force rental communities to convert to for-sale product, arguing it would shrink rental supply and doesn’t solve affordability. Regional Real Estate Cycles in the U.S. (Priority: 5/5): He says the U.S. is not a national housing market; Sun Belt markets are oversupplied and struggling, while the Midwest is steady and San Francisco is rebounding strongly. San Francisco Recovery and AI Demand (Priority: 5/5): Shapiro is highly bullish on San Francisco apartments, citing AI company occupancy, improved public safety, and vacancy/rent recovery as key drivers. Industrial, Logistics, and Data Center Ecosystem (Priority: 4/5): He favors warehouses and logistics tied to reshoring, manufacturing, and data-center supply chains, while warning data centers can be locally disruptive and power-intensive. Brazil as a Separate, Cyclical Growth Story (Priority: 4/5): GTIS’s Brazil platform is built around high-quality development in a market with structural complexity, currency swings, and strong exposure to commodities and China demand.

Key Arguments: Real estate can hedge inflation, but employment is the real driver of housing demand and occupancy. AI matters because it can reduce jobs, alter office demand, and change household formation, but it also boosts demand for data centers and power infrastructure. Immigration has been a major contributor to household formation and construction labor; tighter immigration has hurt housing demand and supply. Build-to-rent communities should not be forced into for-sale conversions because many renters want to rent, cannot afford to buy, or live in structures that are not practically convertible. The U.S. housing market is highly regional; oversupplied Sun Belt markets are still digesting too much construction, while San Francisco is recovering faster than expected. San Francisco is benefitting from AI firm occupancy, better city governance, improved safety, and rent stabilization dynamics that create opportunity in older buildings with turnover. Industrial/logistics remains attractive because of reshoring, supply-chain resilience, and strong demand from data-center and manufacturing ecosystems. Brazil offers opportunity in office, industrial, and hospitality, but only for investors willing to navigate complex regulation, currency volatility, and a less mature financing market.

Data Points: AI occupancy in San Francisco: Almost 9 million square feet - Shapiro cites this as evidence that AI demand is real and materially affecting the city’s office and apartment markets. AI share of occupied space in San Francisco: Over 13% - He uses this to show AI is now a significant driver of local demand. San Francisco vacancy: About 35% vacant historically; now moving into the teens - He says AI demand is pushing the market toward a much tighter vacancy profile. San Francisco rent growth: Over 10% year-over-year - He describes this as one of the strongest recent rent recoveries in the country. Older San Francisco rent-stabilized buildings: 1979 or earlier - He notes these buildings fall under rent stabilization rules, shaping his acquisition strategy. Rent increase under stabilization: 0.6% of CPI - He says rent growth is very limited in older San Francisco buildings unless units turn over. Free rent in Nashville: Four months - He cites this as a sign of severe oversupply in Sun Belt apartment markets. Phoenix supply absorption forecast: 18-24 months initially; still about 12 months later - He says market participants underestimated how long oversupply would take to clear. Own vs. rent cost gap: $1,100 to $1,200 more per month to own than rent - He uses this to argue affordability makes renting rational for many households. Household affordability at 5% mortgage rates: 9 million households could afford a $400,000 mortgage - He says lower rates would materially expand buying power. Brazil policy rate: 15%, then cut to 14.75% - He references Brazil’s high-rate environment and cautious cuts. Brazil rent/lease indexing: Rents can go to market every three years - He explains why Brazil office assets can still produce attractive returns despite macro volatility. Currency swing in Brazil: From 1.7 to nearly 6 - He says currency moves have materially affected realized returns for dollar-based investors. Industrial starts: Down about 50% - He cites reduced new supply as supportive of industrial/logistics fundamentals. Warehouse development pipeline: About 8 to 10 active projects - He says GTIS is actively developing logistics assets, mostly in the Sun Belt and Carolinas. Brazil office build size: 1.1 million square feet - He mentions a large spec office project in São Paulo that signed a full-building lease. Brazil real estate team size: 30+ people locally and four in-house attorneys - He highlights the complexity of operating in Brazil.

Pivotal Quotes: "AI, supply, et cetera, I think are much bigger concerns right now than just the inflationary part of what's happening in the economic cycle." — Tom Shapiro: He explains why he thinks job disruption and supply issues matter more than inflation alone. "If you have less jobs and less household formation, you're going to have less demand for housing." — Tom Shapiro: He connects labor-market weakness directly to residential real estate demand. "We love the San Francisco story, and we think that is really the best place right now for us to invest in apartments." — Tom Shapiro: He states GTIS’s strongest U.S. conviction and the basis for its apartment strategy in the city.

Implications: Listeners should expect real estate winners and losers to remain highly regional. Housing, industrial, and data-center-adjacent assets look strongest where jobs and AI activity cluster, while oversupplied Sun Belt markets may take longer to heal.