Multifamily is obviously a lot more challenging today, as is most real estate overall, but MF in particular has lots of concessions in most markets, slow growth (if any), fewer transactions, lower valuations, and just softer market generally.
- Is it getting overbuilt, or are we just in a down part of the cycle?
- Voices like Jay Parsons, John Burns, many MF firm leaders, and others seem to all to some degree believe in the narrative that the supply drop-off, cultural effects like delayed marriage/kids/buying a house and more grad school/more moving cities, lack of housing affordability, and other macro effects are all tailwinds for multifamily for years to come, even if it's hard right now.
- Is that true in your opinion, or is multifamily being misunderstood? As developers have tied up and entitled sites and are just waiting to capitalize, will markets continue to see supply against a backdrop of easing demand, and fail to get back to the late 2010's (~2018) era of being one of the "darling" asset classes?
I don't have a current study in front of me, but "overbuilt" is relative to submarket and basis. For instance, you would have struggled to get deals done in some cities in 2021 even, while in the sunbelt you could throw a sub 4 cap exit on your model and have a list of equity and debt lined up by the end of business.
As for affordability, it is absolutely true that for most people, especially the people you would most likely be renting to, the economy is dogshit right now. Inflation is absurd, wages have stagnated, no one is hiring, and the average person is very stretched on money.
This is good and bad for you as a multi owner. The good part is, none of these people are buying houses and they most likely aren't interested in hopping between apartment complexes every year, making them more likely to renew. The bad part is, if you try to be aggressive with rents, they will absolutely reject you. At a well-run property, occupancy should be high right now, but rent growth is probably low to nonexistent. No one is losing their shirts, but no one is seeing their promote from the last few years of deals either.
But again, that is dependent on market too. It wouldn't surprise me for someone to reply to this post with "Man, my multi deal in [obscure submarket] is absolutely tonning it right now" and good on them if that's the case.
The biggest thing for me, as per your last bullet point, is that multifamily isn't being misunderstood (people will always need places to live) so much as the merchant-built multifamily model that has powered the last 15 years of development doesn't function the way that it used to anymore, because it was completely predicated on growth. A few years ago, I could build a deal at aggressive rent prices and underwrite 5% rent growth throughout lease-up (investors would discount to 3%), and overachieve. Every month I'd beat both my leases signed and rent growth projections. Now? There's none of that, so underwriting has to be more conservative.
But nothing else is changing to balance that conservative rent growth. Landowners are still pricing their plots at 2021 prices even though that doesn't underwrite anymore. Construction costs and materials are still pricing at 2021 prices even though that doesn't underwrite anymore. Architecture is up. Legal is up. Every single thing is more expensive, and no one really seems to want to budge, even if not budging is making them feel pain.
Eventually something will give. No is is going to sit around not doing deals and bringing in income forever. But will costs break before developers' need for fees? I'm not sure about that. Will merchant-built multifamily ever be back to the goldmine it was for most of the last decade and a half? I'm not sure about that either.
Probably some bias showing, but I saw between 2015-2022 or so the industry kind of deluded itself into thinking that managing the asset didn't matter and that aggressively chasing income came with no risks.
A lot of the people having issues at the moment were the ones that added every fee they could, kept rents high enough so occupancy never got above 94%, and then when things turned slightly against them they were staring down the barrel of 80% occupancy and 20 NTVs.
I developed luxury MF on the West Coast / Silicon Valley from 2010 - 2016. 2013 was the trifecta year and 2016 was the harvest year, but new development from that point on became more challenging (more supply, competing lease ups, and construction cost growth exceeding rent growth). For some development firms, there were bigger and bigger capital pipelines with dis-intermediation a major theme, and seeing develop-to-core strategies with global pension funds. Rent growth in earlier years exceeded initial underwriting and cap rates compressed. 2016 was a banner year to get that juicy promote.
A K-shaped economy does not help MF (it helps luxury senior living though; also high end SFR).
Broad base employment and wage growth helps MF. With AI, the value of white collar work is eroding. The thing is AI is a global phenomenon and so is peak population, so I just can’t say “go be a MF developer in Shenzhen or Lagos” without some caveats.
I think there is profit to be made. But the heyday is behind us. The next big catalyst of human migration may be due to climate change, or resurgence of immigration to the US due to world war (not to sound pessimistic), or immigration reform leading to a rebound in population inflows. That would help gateway cities.
MF is the best asset class to learn development due to understanding what people want in the build environment (the other is learning something so specialized like data centers and understanding what machines want).
I’m surprised nobody mentions the regulatory risk that multifamily is target #1 for socialists everywhere. We are going to be fighting off implicit (I.e. rent control) or explicit asset seizures for the near future at least.
Calm down, Hannity
There is no threat of “socialist asset seizures” 😂
What do you call rent control, punitive code enforcement, and eviction moratoriums on assets you “own”? What is ownership without control?
"we will use every single tool at our disposal, including seizing buildings from slumlords" - Mamdani
"homeownership is a weapon of white supremacy” and calls to “seize private property.” - Mamdani's current Tenant Czar
Divestment from NYC has already started. Stabilized buildings that would have been less than a 4 cap 5 years ago are struggling to get offers below a 6. No one is developing apartments with over 99 units. Pretty incredible for a market with 1% vacancy.
Councilmembers will not approve development projects unless there is an African American as part of the development JV. Mamdani is making it so landlords have less flexibility when vetting tenants, pretty damming from a city where it already takes an average of 9 months to remove a delinquent tenant.
So you're right, there is no threat of a "socialist asset seizure" in the next 24 hours, but absolutely in the next 4 years. Looks like you're 22-23 but in the 1980s NYC did own over 100,000 units and HPD had to sling them off to NGOs. (NYC was really bad in the 1980s, driven by divestment) HPD still is a disaster today if not more so.
Doesn't seem like either one of those are talked about much other than places where it's already a nightmare to manage a property.
It's hard to make a sweeping statement about something as large and diverse as the multifamily markets in major U.S. metros. Conditions vary so much from market to market. But I can try to speak to the Sunbelt, since that's where I have the most experience.
What we saw during the post-pandemic boom was essentially seven to eight years' worth of normal rent growth compressed into about a three year window, all driven by a huge wave of net in migration, historically low interest rates, and demand that outpaced anything supply could keep up with at the time. Given all that, it makes sense to me that it would take some time for the market to work its way back to normal. If anything, I'd be genuinely concerned if we were still seeing that kind of pandemic-era rent growth today.
A huge part of what's driving that correction now is the supply that followed. If you saw high single digit to low double digit rent growth for two to three years in a row, of course it made sense to build. Developers were flush with capital during that time, thanks to cheap debt and investors chasing yield in a hot sector and a hot geography, and they responded to that rent growth exactly the way any rational person would, by building aggressively. That wave of new supply is now working its way through the pipeline and getting absorbed, which is a big part of why rent growth has slowed and, in a lot of markets, gone negative. With rent growth flat or negative, fewer new projects are getting greenlit and the pipeline is starting to stall out, which is actually a positive sign.
That said, as CRE touched on, the broader economic conditions could complicate the story. We still have a lot of existing supply left to lease up, and while the Sunbelt migration story is still alive, it's slowing. If economic conditions were to worsen from here, that could make things bad even with the development pipeline drying up, a weaker economy could dramatically extend the time it takes to lease up all the supply that's already on the ground.
But as I said at the start, though, this is just the Sunbelt. There are plenty of pockets doing quite well, and it's not just smaller markets. The traditional large coastal gateway markets are all still seeing growth, San Francisco, New York, Boston, etc.
We hold some multifamily but almost all of our new capital is going into NNN industrial, so I'll answer as someone actively voting with the checkbook rather than as a forecaster.
On the setup, I don't think the bulls are wrong. Deliveries went roughly 695k in 2024 to 531k in 2025 to something like 382k projected this year, against absorption running 350k to 400k. The crossover is coming. Parsons and Burns are describing something real.
Two things I'd add that I don't see in the usual framing.
First, in Florida specifically, the last three years got underwritten as a rate story and a supply story when a lot of it was an expense story. Insurance repriced brutally on coastal assets. A 2021 vintage deal here often did not miss because rents disappointed, it missed because one expense line multiplied and took DSCR with it. Post-reform that line is finally moving the other way and carriers are coming back, unevenly and very much as a function of roof age and wind mitigation. Most models I see still carry the peak number as permanent. So yes, I think Florida MF is misunderstood, just not in the direction the supply debate argues about.
Second, and this is why our money is going elsewhere anyway: multifamily is a management business wearing a real estate costume. When people compare a 5.5 cap on a stabilized MF deal to a 6.5 cap on a long absolute NNN industrial building, they think they're comparing yields. They're comparing jobs. Turnover, collections, staffing, capex sequencing, and the operating drag never shows up in the going-in cap rate.
None of that is a fundamentals call. I think MF fundamentals improve from here. I just want the version of real estate where the tenant handles the roof.
What are people carrying for insurance growth in year one right now? That is the assumption I'd most want to compare notes on.
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