Thoughts from PCC’s CIO
By Darren Hulick
As we move into the second half of 2025, we are observing some pricing dislocation in certain markets and asset profiles driven by soft fundamentals, mismanagement, persistent interest rate pressures and fatigued lenders who are no longer willing to kick the can down the road. This environment is presenting a compelling window for strategic acquisitions.
After several years of compressed cap rates and rapid rent growth, key markets in Texas have entered a recalibration phase. While the demand side of the equation has remained strong, over-supply of new Class A apartments has caused declining rent growth, tenant filtering and concessions in stabilized assets which has created valuation gaps between sellers and the market. We are seeing distress or highly motivated sellers in certain markets in Texas including San Antonio, Austin and secondary DFW submarkets. With the herd chasing 2000s and newer vintage assets, a capital void has been created for older vintage properties leading to some very attractive going-in cap rates and basis plays for certain assets. We continue to focus on attractive going-in basis and mismanaged assets in which we see a clear path to stabilize the property and add value through professional management and curing deferred maintenance.
Other markets have been a bit more challenging to close the bid-ask spread as political/legislative factors are coming into play increasing the uncertainty around deals in an already uncertain market. While Colorado continues to remain a high-quality market, declining rents in the first half of 2025 and large negative lease trade-outs for older vintage properties are causing significant bid-ask spreads. Many deals that come to market involve sellers who are unwilling to meet current pricing expectations and are instead forced to explore other options, such as loan extensions, which are becoming increasingly rare. In addition to the downward pressure on rents, recent legislation around fees landlords can charge, Energize Denver and political noise around potential rent control has increased the uncertainty for potential investors, exacerbating the bid-ask spread. This has made finding attractive opportunities more difficult than other markets we are in. We continue to track the market in search of attractive opportunities in the suburbs outside of Denver County that have strong employment anchors and lower political volatility.
As market conditions shift in the second half of 2025, we continue to hunt for compelling opportunities while staying disciplined with our underwriting. Our strategy remains focused on acquiring well-located, mismanaged assets at attractive bases—particularly in areas with strong demand drivers and lower regulatory headwinds—where we can unlock value through active management and operational improvements.