Multifamily - Development versus Acquisitions in 2026

To be perfectly honest, the developers don't really care. Their jobs are on the line rn so they are desperate to get deals going whether the deals make any sense or not. Most of the time it's not their money anyway so why do they care? Obviously promote would be great but keeping your job is #1 priority.

Developers' need fees or else the lights turn off. Right now more focused on signing up deals versus optimizing for IRR/cash flow.

If I was sitting on a pile of money at the moment, I would want to buy core plus assets significantly below replacement cost in overbuilt growth markets.

Whoa!  This has got to be the craziest, most innovative, most unique strategy ever conceived in commercial real estate!   I mean, I've heard of buying safe assets in great markets, but I always assumed the way to really make money was to wildly overpay for them.  Only now am I just realizing that actually the key is to pay less!  Game changer!

If I knew what this week's Powerball number would be, I'd buy a lottery ticket instead of showing up to work. Another genius plan with no logical flaws!

Yet I hear about new construction starts. Do these developers really think they can achieve their pro forma rents and go on to make promote? Feels too risky at the moment.

Well, yes, they probably do.  Also, earning a promote isn't the only way developers make money.  Here's a crazy scenario.

You run a mid size local development firm.  You've got a fair number of staff who have been with you for years; they know the business backwards and forwards.  Yields are pretty thin, so business is slow... but you still need to keep the lights on, pay salaries, etc.  You simply can't afford to lay lots of people off and wait for things to pick up; you can't lose all that institutional knowledge and expertise.  You need those folks so that when rates go down or inventory gets absorbed and the market turns in your favor, you can take advantage of it by moving quickly and scooping up good deals.  So what do you do?

You take on projects which are a little iffy, but at least they pay fees and keep a trickle of cash coming in.  You won't get rich on them, but that isn't the point.  Most of this forum wants to make $100mm in the space of a few years, and don't understand or care that that isn't how the world works, and certainly not how real estate works.  Everyone does well during the boom times, and because people aren't good at planning, a lot of them lose everything when things go sour.  Down markets are where you separate the wheat from the chaff.  And the beginning of a new bull market is when developers make a fortune.  Because that's when the stupid people haven't gotten in, when everyone is trying to offload the last cycle's bad deals for cheap, when having a balance sheet and a team and the ability to move quickly and take down multiple projects before all the idiots jump back in and start bidding shit up?  That's when you hit the home runs, the ones where your promote earns you tens of millions of dollars.