Alternative Investing Report - February 5, 2025

*as of 2/4; Sources: S&P, BTC, FTSE, DJRE, CL50

Office-to-residential conversions are at a record high level, with 70,700 apartments converted from offices now under construction nationwide. New York ranks as the top converting metro area with 8,310 units being converted, followed by Washington and Los Angeles. It is a slow process, with only 3,709 units completed last year out of 55,339 that were in development. Though many of the projects are high-profile, conversions represent a relatively small amount of office space and unit count.

➨ TAKEAWAY: Expect these numbers to rise, as conversions are a logical solution to the apartment shortage and the office space surplus. Additionally, many cities, including New York and Washington, DC, are cutting regulations while offering incentives and tax breaks to developers to encourage office-to-residential conversions. With apartment vacancy rates dropping, and multifamily buildings in high demand, there are clearly opportunities to take unused office space and find a more efficient use for it.

In this episode of Smart Humans, Vincent CEO Eric Cantor and Sacra co-founder Jan-Erik Asplund talked about OpenAI, the American AI giant. They looked into the company’s growth, strengths, challenges, IPO prospects, and answered investor questions.

The premier art market analysts Michael Moses and Jianping Mei - creator of the Mei-Moses indices now owned by Sotheby’s - released a report saying the fall art auction season was the worst performing auction season of the 21st century. They looked at “repeat sales,” meaning a piece of artwork has previously been sold at auction and then sells again at auction. The mean return of such sales (where the original purchase was from after 1970) was -0.1%, the first time since 2000 that the result has been negative.

➨ TAKEAWAY: Mei and Moses had previously named the spring auction season as the worst since 2000, so there has been no improvement since then. Repeat sales analysis is one measure of the art market, but it does ignore works that were sold at auction for the first time. Those sales include a lot of contemporary work and work originally purchased privately or from a gallery, which do often achieve strong returns at auction. However, there is no doubt the art market is in a down period, and how the upcoming spring auction season performs will be worth watching for collectors and investors.

🗽 Sovereign wealth fund: President Trump signed an executive order to establish a sovereign wealth fund within the next twelve months, though it is unclear where the money would come from. There is speculation it could be used to buy Bitcoin or become a partner in TikTok, but in any case, a U.S. sovereign wealth fund would become a major player in markets for any asset class.

💵 Pension funds and private credit: As of the end of Q3 2024, the 200 largest U.S. retirement plans hold $198.4 billion in private credit assets, up 57% year-over-year, and nearly 8x from the $26 billion mark of only five years ago.

🪙 Crypto Czar speaks: David Sacks, the Trump administration’s “Crypto Czar” held a press conference for the first time, outlining a broad, pro-crypto agenda, and saying his team would evaluate the feasibility of a national Bitcoin reserve.

🏡 Agent commissions mostly unchanged: Last year’s landmark antitrust settlements on real estate agent commissions have not led to an overall shift in the market, with the average buyer’s commission hitting 2.37% in Q4, compared to 2.36% when the new National Association of Realtors (NAR) rules took effect in August. The average commission has decreased slightly for homes sold for more than $1 million and increased slightly for homes under $500,000.

🚀 Defense tech funding: The drone defense startup Hidden Level raised $100 million at a $500 million valuation, the latest big raise for the sector in 2025, following long-range weapons startup Castelion’s $100 million Series A, FireHawk Aerospace’s $60 million Series C and military software startup OneBrief’s $50 million Series B.

🎨 World record vase: A carnival glass vase, one of only nine of its kind, sold for a world-record $250,000 at an Ohio auction, after originally being bought from a hoarder house.

The two tokens in the top-100 by market cap that saw the biggest losses in the past week are closely related - the two Trump-based memecoins, TRUMP and MELANIA. Released to great fanfare the night before the inauguration, Trumpcoin zoomed quickly from $7 to $75, prompting waves of media attention. Since then, it is down more than 75% from its peak and lost 37% of its value in the last seven days. Melania’s coin only reached a peak of $12 per token, and has lost 77.5% of its value since launch. Don’t worry about the President’s finances, though, as entities connected to him have reaped $100 million in trading fees from the coins, even as hundreds of thousands of small traders have lost money investing.