👋👋 Good morning real estate watchers! Today, we are going to talk about how billionnaires are building cities in 'weak states' across Africa and the Caribbean, which they claim will bring jobs and investment. You know what we used to call it when rich Westerners showed up in developing countries promising prosperity in exchange for land and autonomy? THE EAST INDIA COMPANY.

But first, here’s what we’ve been paying attention to this week…

1️⃣ Rates, Still Rude: The Fed is buying $40B/month in short-term Treasurys to rebuild bank reserves and smooth funding markets, explicitly not to juice the economy, with plans to taper by spring 2026. But by continuing to shrink its MBS holdings, it keeps long-term borrowing costs stubbornly high, leaving CRE deals and development stuck in expensive-money purgatory. (CRE Daily)

2️⃣ REITs Reloaded: REIT transaction activity has recently ticked up, and history suggests they’ll get even busier as public and private real estate values converge and capital costs become less punishing. Over the past year, retail/health care/industrial/self-storage have been the biggest net buyers, while residential/office/diversified have been the biggest net sellers. (REIT)

3️⃣ Jobs Got the Ick: Shutdown-delayed BLS data show the labor market cooling: unemployment rose to 4.6% (highest since Sept 2021) and wage growth softened (+0.1% m/m, +3.5% y/y), which can weigh on housing demand. Payroll gains look modest at best (+64K in Nov) with October distorted by federal job declines, and the Fed is effectively “haircutting” jobs numbers, suggesting policymakers may read this as slowing momentum, not strength. (Realtor.com)

4️⃣ Confidence, Kinda: Builder sentiment ticked up to 39 in December, but it stayed below the 50 break-even point every month in 2025, reflecting affordability pain plus rising costs and tariff/economic uncertainty. About two-thirds of builders are using incentives to coax buyers, even as expectations for future sales have been above 50 for three months and easier monetary policy could slightly improve builder financing heading into 2026. (NAHB)

5️⃣ Holidazed Supply Squeeze: New listings fell 1.7% YoY in the four weeks ending Dec 7 (the steepest drop in over two years) while pending sales fell 4.1% YoY, signaling both sellers and buyers are backing off into year-end uncertainty. With homes taking about 51 days to go under contract and prices still up 2% amid tightening inventory. (Redfin)

TOP STORY

When Erick Brimen surveys his Honduran island from the co-working space overlooking a private beach, he doesn't see a gated community. He sees the future of real estate development and a $150 million proof of concept that has traditional city planners either intrigued or horrified.

His project, Próspera, operates as a for-profit city where a Delaware-based company writes the labor laws, retired Arizona judges hear disputes via Zoom, and Bitcoin circulates as freely as the local currency. For real estate investors watching from the sidelines, it represents something more provocative than another luxury development: a wholesale reimagining of how cities are built, governed, and monetized.

Welcome to the network state movement, where approximately 120 "start-up societies" are now in development, according to an open-source database, and venture capital from Peter Thiel, Marc Andreessen, and Coinbase CEO Brian Armstrong is flowing into experimental cities that promise returns measured not just in dollars, but in regulatory autonomy.

"This whole movement is about reinventing governance for the 21st century, inspired by start-ups and the internet," explains Patri Friedman (grandson of economist Milton Friedman), founder of Pronomos Capital, which invests in experimental cities. His pitch to real estate investors is refreshingly blunt: "A private venture-backed company is the city operator and [its directors] design the laws and they earn revenue through some combination of rents, taxes, service fees."

It's master-planned communities meets municipal sovereignty…if Robert Moses and Ayn Rand had a baby and gave it a cap table.

The economics are compelling, at least on paper. Próspera claims to have created more than 4,000 jobs and attracted over $150 million in foreign direct investment to an area of Honduras where economic opportunity has traditionally meant leaving the country entirely. The development model relies on securing special economic zone status from host governments; essentially permission to operate with semi-autonomous civil and commercial regulations in exchange for capital investment and job creation.

For investors, the value proposition extends beyond traditional real estate metrics. "The product market fit today, for what I do, I strongly believe is helping the global south to become first-world," Friedman says. In January, Coinbase's venture arm announced it would invest in Próspera, calling the project "in line" with its "mission of creating economic freedom."

The movement's residential component varies wildly. Balaji Srinivasan, the former CTO of Coinbase, has launched a "Network School" on an artificial island near Singapore, where membership and accommodation (what he dubs "society-as-a-service") start at $1,500 per month. Think co-living meets nation-building workshops.

Meanwhile, Próspera offers more conventional real estate: close to 1,000 residents occupy homes in what functions as an upscale gated community complete with a beach resort and golf course, though with the added novelty of being able to receive experimental medical treatments unavailable in most jurisdictions.

The regulatory arbitrage opportunity hasn't escaped notice. Amjad Masad, CEO of AI coding company Replit, relocated his company to Foster City (a 1960s-era master-planned city) to escape what he described as the "suffering on the streets" of San Francisco. "Young people are clearly yearning to discover new ways of living and building through technology," he observes.

But here's where the pitch deck meets geopolitical reality: Próspera is currently suing the Honduran government for $11 billion (aka nearly a third of the country's GDP) for lost future profits after the government attempted to repeal its charter. Honduras's supreme court had ruled that self-governing special economic zones are unconstitutional.

"Precisely what Próspera is doing [suing Honduras] is precisely the argument governments are going to make about why you should not be editing your constitution to allow for this," warns Cornell University historian Raymond Craib, author of Adventure Capitalism: A History of Libertarian Exit.

Guillaume Long, Ecuador's former Minister of Foreign Affairs, is more direct: "If you're a weak state and you're giving over large portions of land to a private state, there's a really dystopian, really futuristic and really feudal aspect to this."

Even Friedman acknowledges the challenge: "It's kind of like an oligopoly, right? There are 193 firms, and it's super, super hard to start a new one." He's referring to the 193 UN-recognized nations—not exactly a liquid market for real estate developers seeking regulatory independence.

For investors, the calculation comes down to whether you believe Friedman's vision of "radical governance optionality" represents the future of urban development or an expensive midlife crisis for billionaires who've run out of boats to buy.

Peter Thiel, worth $27 billion and one of the movement's biggest backers, recently complained that wealth gives the "illusion of power and autonomy but you have this sense it could be taken away at any moment." It's an admission that even with tens of millions deployed, these projects remain dependent on the very governmental structures they're attempting to circumvent.

The returns remain uncertain. "They are ideological," notes Masad of the crypto-wealthy investors backing these ventures, particularly as "returns on software investment have plateaued and investors sought 'the next big thing.'"

Olivier Jutel, a lecturer at the University of Otago and expert in cyberlibertarianism, offers perhaps the most sobering assessment for real estate investors considering this space: Próspera "hasn't attracted the best talent, founders, funders—you still need to be in the midst of San Francisco where all the deal flow is happening and all the labour you need."

For real estate investors, network states represent less a proven investment vehicle than a philosophical bet on governance disruption. The projects offer genuine innovation in special economic zone structures and could pioneer new approaches to public-private urban development. But they also carry sovereign risk on steroids, where your investment's returns depend not just on demand and construction costs, but on whether the host government decides your entire legal framework is unconstitutional.

As Brimen puts it, defending his $11 billion lawsuit: "What they need to do is follow the law. That is the way it should be and I'm proud of it, and Honduras will be better for it."

Whether real estate investors share that confidence and that definition of "better" will determine whether network states become the next master-planned community trend or a cautionary tale about what happens when cap tables meet constitutions.