The commercial real estate market has endured a lot of pain in the last few years. The 10-year Treasury has moved up 50 to 60 basis points in just the last few weeks, and anyone active in multifamily right now is feeling it, in their debt quotes, their underwriting, and the conversations they’re having with lenders and investors. We think it’s worth sharing what we’re actually seeing on the ground.
EXECUTING IN A DIFFICULT MARKET
Over the last twelve months, we’ve successfully refinanced five deals across our portfolio. Each one required real execution, navigating a rate environment that offered little margin for error and lender conversations that demanded asset performance, operational credibility, and borrower strength. Most recently, we closed another refinance where we made a decision to rate lock early to secure the max proceeds and ensure we could close and begin executing on our revised business plan. We’re not going to overstate any of this. The market has been genuinely hard, and we focused on what we could control: our assets, our operations, and our relationships. We’re grateful that each of these transactions came together.
PRICING: A TALE OF TWO MARKETS
On the acquisitions side, the bifurcation between asset classes is stark. Class A properties, newer vintage, amenity-rich, strong submarket locations, are still attracting real competition. It’s not uncommon to see 10 to 20 qualified bids on a well-marketed and well-priced Class A deal. Institutional capital hasn’t stepped away from quality.
Workforce housing is a different picture. Larger deals (200+ units) in this segment of the market may see two or three bids where they once would have attracted a dozen. Sellers who’ve held out are beginning to adjust expectations. Cap rates for stabilized workforce housing are trending into the high sixes and low sevens, and at those levels, we think the asset class is starting to appropriately reward the risk. That’s a meaningful shift from where things stood 18 to 24 months ago.
OPERATIONS: HEADWINDS EASING, BUT NOT GONE
The operational environment remains challenging. Concessions are still a real tool in many markets, free rent, waived fees, move-in specials, and rent growth is muted. Pushing rents aggressively right now isn’t a strategy; it’s a way to lose occupancy.
That said, the picture isn’t entirely unfavorable. Insurance costs, which were a significant headwind over the past two years, are finally decreasing. Property taxes, at least in markets where operators have been proactive on appeals and legislative developments, are showing signs of leveling off as well. And occupancy, perhaps the most important leading indicator, is quietly regaining strength across our portfolio, as supply absorbs.
WHAT’S COMING: CAPITULATION AND A MARKET RESET
For the past two years, a meaningful segment of the market has been operating on hope, extending loan maturities, deferring decisions, and assuming that rates would eventually come back down to bail out deals that were underwritten for a different world. That bet has not paid off. Rates aren’t falling, and the runway is nearing its end.
What we’re starting to see as a result is real capitulation. Lenders and borrowers alike are coming to terms with the math: equity has been eroded, refinancing assumptions no longer hold, and the path forward for many over leveraged deals is a distressed sale, sometimes at less than the outstanding loan balance. We’re seeing more of these situations emerge, and we expect that to continue.
Distress in the market has real consequences for sponsors and their investors. But it is a reset, and resets ultimately create the conditions for a healthier, better-priced market. For buyers who have maintained their discipline, preserved dry powder, and built the infrastructure to underwrite and operate for the long-term, the opportunities ahead may be among the most compelling we’ve seen in this cycle.
WHY WE’RE CAUTIOUSLY OPTIMISTIC
When you put it together, stabilizing expense lines, recovering occupancy, a supply wave being absorbed across most Texas submarkets, and a pricing reset underway, genuine tailwinds are beginning to form. We are not in the business of calling a bottom, but we do believe that sponsors who have managed their assets well through this cycle, managed and restructured their debt appropriately, and maintained strong investor relationships are going to be well-positioned as conditions normalize.
We’ll continue to share our perspective as the market evolves. If you’d like to discuss what we’re seeing or talk through current opportunities, we’re always glad to connect.
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