In the world of real estate investing, where precision and foresight are everything, the ability to identify tomorrow's high-performing neighborhoods today is a competitive edge. But what if there were a data-driven signal—hidden in plain sight—that could predict gentrification with surprising accuracy?

Most of you reading this are old enough to have seen - if not lived in - neighborhoods that changed significantly. Whether for better or for worse, you understand how quickly local quality of life and property values can reset, usually as amenities, schools, retail or just density can reshape both quality of life and property values. In fact many real estate people have an evolved intuition for neighborhoods. We can tune in to how a neighborhood feels and think critically about value. Would a new hotel do well here? A new multifamily project? A boutique office building? These are the questions that drive strategic investment decisions—and the answers often lie in understanding local trends.

Investors faced with lots of opportunities could enjoy an edge if they could broadly tap into neighborhood trends. ‘Tapped in’ is hard to be however; it’s hyper-local, and any idiosyncratic bet on a submarket improving and gentrifying carries a lot of uncertainty. That may explain the tendency of most firms to rank investment markets at the MSA level. However, for those of us investing asset by asset, we’d all sleep better if we felt confident the neighborhood we just bet on - not just the MSA - was about to improve. Thankfully with advancements in data and analysis, that’s getting easier to do.

Recent research confirms what you’ve heard anecdotally - neighborhoods with rising same-sex household populations experience measurable gentrification. A new study by three economists associated with the University of Alabama found a robust link between increases in same-sex households and subsequent neighborhood revitalization, as measured by income growth, average education level and home price appreciation, among other things. Their findings, published in the Journal of Real Estate Finance and Economics, quantify what savvy investors have sensed for years: demographic shifts in specific submarkets can serve as leading indicators of value creation.²

They boiled things down: In an urban census tract with home values in the lowest 25%, one additional same-sex couple per 1,000 households drove up average house prices by six percentage points or $4,500 over the ten-year study period. For these urban tracts, that one additional same-sex couple per thousand saw an average median income increase of $2,000 and increased the likelihood of gentrification by more than 2.5%. That’s powerful! A critical nuance - the gentrification happened once a critical mass of same-sex households moved into a neighborhood, a point we explore below. 

While the study confirms a causal relationship between same-sex households and gentrification, the mechanisms remain nuanced. One potential reason: Same-sex couples have fewer children than different-sex couples, and kids are expensive, so it’s likely same-sex couples allocate more discretionary income toward local amenities, restaurants, and cultural activities. However, this explanation faltered when the researchers looked at different-sex couples with no children, whose presence shows no comparable gentrification effect. So it’s not just discretionary income.  

Another potential reason is related to the benefits of clustering. Like any social group, same-sex couples find community, safety and representation as density increases in a single, tolerant neighborhood (think the Castro in San Francisco). Makes sense, and we can see that cluster wanting to see a better neighborhood, but the authors stop short of pinpointing exact drivers, speculating that gay couples “invest in their homes and communities, fostering an environment that attracts additional amenities and improvements.” Err, maybe? The authors leave the ‘why’ not fully explored. 

But we give them credit for asking other great questions. Like, if the clustering of same-sex couples really is a core input for gentrification, how many same-sex couples does it take to make a cluster and for a neighborhood to start to gentrify? Honestly, asking that question out loud feels a little weird, but apparently it didn’t to the researchers, who dug deep and found a tipping point at 20 additional same-sex couples per 1,000 households, “beyond which gentrification becomes significantly more likely.” 

And differences between gay men and women? Results about same-sex couples are robust regardless of sex, but they’re especially robust if looking specifically at increases in gay male couples, who are also more likely to cluster vs. lesbians.  

The learning: For investors in any urban property type, if betting on a submarket to improve, you can use clustering of same-sex households as a predictive signal of gentrification, and that should help you get comfortable. Census data can give you information related to same-sex households, and it could be worthwhile to think about those household growth trends against other signs of increasing gay life, and more generally, tolerant or inclusive local policy signals.

PS. Gentrification happens when a neighborhood experiences increasing “household incomes, education levels, and property values, along with decreases in poverty rates,” according to the authors. We talk above about gentrification as it may positively impact a real estate investment, and, because this is an investment newsletter, we don’t address issues related to displacement of a local population or other potentially negative dimensions of gentrification.

The Rake

Three good articles.

• Tariff Uncertainty Drives Up Apartment Costs, Delays Projects, and Shifts Renter Demand - Globe Street

  Tariff uncertainty is sharply escalating multifamily construction costs, delaying project timelines, and forcing developers to rethink supply chains and design standards—directly impacting asset performance and renter demand across all major markets.

• BBX Capital To Cut Staff, Pause Developments - BisNow

  BBX Capital is aggressively cutting costs and reshaping its capital strategy to weather current market volatility, prioritizing liquidity and flexibility to seize emerging distressed opportunities. This includes cutting staff and pausing development.

• Making Office-to-Residential Conversions Work - Thesis Driven

  This developer's successful office-to-residential conversion case study highlights how rent/cap rate arbitrage created significant value despite substantial execution risks and cost overruns. Success ultimately hinged on meticulous pre-conversion due diligence regarding building systems and layout, favorable zoning, and maintaining ample contingency budgets.

The Harvesters

Someone making real estate interesting. They don't pay us for this, unfortunately.

Who: Ori

What: Robotic furniture manufacturer making small urban apartments live bigger. Think beds rising up into the ceiling, turning a bedroom into a living room, or bookcases rolling away from the wall revealing a closet or an office set-up behind.

The Sparkle: A luxury twist on the micro-unit idea. Ori builds furniture, but they make small apartments live much larger. So now with 1,600 units proven in the field they’re talking to developers and investors about creating Ori Buildings, built from the ground up with stacks of Ori units: Smaller-footprint studios and 1BRs that earn the same or more check rent as comps.

From the Back Forty

A little of what’s out there.

The Macallan distillery sells a product called “Time : Space,” an offering that combines a bottle of five-year-old whiskey, a (small) bottle of 84-year-old whiskey and what looks like a wooden tire from a truck in Mad Max. The website features a video of red AI horses running through a nether-Scotland where everything is pointy. Is this what people buy when they’ve made it big in real estate? We had no idea.

Link: https://www.themacallan.com/en/single-malt-scotch-whisky/time-space

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1  https://minoritybusinessreview.com/trends-shaping-the-commercial-real-estate-landscape-with-spencer-levy-global/

2  Goodnature, M., Henderson, D.J. & Ross, A. Do Same-Sex Couples Induce Gentrification?. J Real Estate Finan Econ (2025). https://doi.org/10.1007/s11146-025-10009-8