By Brennen Degner

The past few years have been a humbling reminder of how quickly markets can shift. In 2021 and 2022, when rents were climbing and capital was easy, it was tempting to believe we had it all figured out. But as the cycle turned, we saw how fragile some of those wins really were. At PCC, we don’t view this downturn as a setback. We see it as a chance to get sharper—on our diligence, our risk management, and our conviction in markets where capital is scarce. If we stay focused, we believe we can turn today’s challenges into tomorrow’s returns.

Digging Deeper in Diligence

The most important shift we’ve made is in how we approach due diligence. Our reviews were always thorough, but we’ve taken the process several layers deeper. We now incorporate a full-spectrum review that covers the local supply pipeline, zoning regulations, demographic and migration trends, and even shifts in the political landscape. We break down intrinsic value assumptions, capital stack risks, construction exposure, operational volatility, and both micro and macro market dynamics. We then tie those elements together in a comprehensive view of how they impact our investors—and PCC as an operator.

We treat seller financials with the same skepticism we apply to physical inspections. We assume building systems are worse than they appear and expect our inspectors to be detailed, not generic, in their assessments. This detailed process feeds into an internal investment committee memo that scores each transaction’s risk profile across multiple dimensions. In short, the challenges we’ve encountered in recent years have pushed us to build a far more robust and disciplined internal framework for risk assessment and mitigation.

Following the Flow of Capital

This cycle also reminded us: capital flows drive pricing. As interest rates climbed and liquidity dried up, many institutional investors stepped back. Rather than seeing that as a red flag, we saw an opening. When fear and complexity scare others off, good assets can be bought at compelling prices.

That’s why we’re focusing on deals priced at levels we haven’t seen in close to a decade, in markets and vintages the herd is overlooking. We agree with the value investors who say the best opportunities often come when information and competition are scarce. We plan our exits as deliberately as our entries: buying when capital is scarce, and selling when it returns.

Risk First, Always

To capitalize on these openings, we have to protect the downside. For us, margin of safety isn’t a slogan—it’s a daily discipline. We stick to buying well below intrinsic value, capping leverage at around 65% of total cost. That gives us the cushion to absorb surprises.

We’re conservative in how we model income growth, exits, and financing—and we stress-test every deal against higher rates, longer holds, and economic shocks. We also choose partners carefully. We prefer working with well-capitalized vehicles that have the resources and flexibility to solve problems if they arise. We’ve learned that simple structures, conservative underwriting, and strong alignment give us the best shot at managing risk while staying opportunistic.

A Philosophy Grounded in Humility

What ties all of this together is a mindset. We believe the payoff to deep analysis goes up when markets are tough. And we try to remember that when everyone else is fearful, it’s usually the right time to lean in. Still, we’re aware of our own blind spots. We build our process around learning—owning mistakes, seeking out outside expertise, and walking away from deals we don’t fully understand.

This blend of humility and conviction helps us stay grounded in uncertain markets. We don’t pretend to have perfect foresight, but we aim to be better students of risk with each deal.

Looking Ahead

The road ahead will likely stay bumpy. Interest rates, inflation, and macro policy remain hard to predict. But we’re not waiting on a clear signal. We’re positioning the portfolio to perform whether the recovery comes sooner or later.

By going deeper in diligence, managing risk with discipline, and leaning into capital-scarce markets, we’re aiming to turn hard lessons into lasting advantages. Our goal remains the same: deliver strong risk-adjusted returns while staying grounded in the humility this market demands.

Feedback from the Pipeline

By Hunter Graul

As we close out the second quarter of 2025, the multifamily investment market continues to experience a slow and uneven recovery. Investor sentiment remains largely bullish, underpinned by strong long-term fundamentals such as population growth, household formation, and constrained new supply. However, despite widespread capital availability and a collective belief in the sector’s resilience, deal activity remains limited. The reason is simple: sellers and buyers are fundamentally aligned on where the market is headed, but divided on how to price that future today.

Sellers want to factor in anticipated rent growth and recovery trends into today’s pricing. Buyers, on the other hand, want to acquire assets at a discount that allows them to realize that upside over time. As a result, quality assets with true distress remain difficult to find, and transaction volume is being suppressed by this disconnect. In this environment, patience and creativity are critical. While headline distress has yet to materialize at scale, pockets of forced sales and dislocation are beginning to surface, particularly in the Class B and C segments.

Regional Market Analysis

In Dallas–Fort Worth, investment activity has picked up considerably, especially among institutional buyers chasing Class A assets. Year-one cap rates for these top-tier deals are trending in the 4.50 to 4.75 percent range, despite representing negative leverage in many cases. More generic suburban Class A assets are trading at 5.00 to 5.25 percent, often below replacement cost. Buyers in these segments are accepting short-term operational volatility in exchange for long-term rent growth potential. Class B assets, particularly those built in the 1980s, are trading in the 5.50 to 5.75 percent range, with pro forma upside via renovation. However, demand is more limited at higher check sizes, as equity is proving more difficult to raise. The Class C segment continues to show the greatest signs of distress, with assets trading in the mid to high six cap range. Many of these properties are experiencing significant operational issues, debt imbalances, and limited buyer interest. This is where the greatest near-term opportunity lies, particularly for buyers with the expertise and capital to reposition.

Austin’s market remains stagnant. Trades are limited, and nearly all transactions are occurring on a “per pound” basis rather than trailing cap rates. Suburban deals are trading in the $180,000 to $210,000 per unit range, while older Class B and C assets, though scarce in this market, are priced on pro forma stabilized yields in the 6.0 to 6.5 percent range. There has been little movement in the high-density, urban product segment due to the disconnect between replacement cost and what the market is willing to pay. We expect rents in Austin to stabilize and begin rising by spring 2026, making the next three quarters a potentially attractive window to acquire vintage assets at a meaningful discount to peak 2022 valuations.

San Antonio presents perhaps the most compelling near-term opportunity. New multifamily starts have effectively stalled, with zero new units breaking ground in the first half of 2025. This comes after an 80 percent decline in starts year-over-year, and positions the market for a significant supply shortage in the coming years. Class A assets are trading in the $160,000 to $190,000 per unit range with cap rates around five percent. Class B and C properties often forced to market by lenders are trading between $50,000 and $80,000 per door with pro forma yields underwritten in the seven to ten percent range. These assets typically come with operational or physical challenges, but the pricing reflects that risk. Several submarkets illustrate the pitfalls of undisciplined investing. With an overconcentration of low-quality assets has created a downward pricing pressure affecting even well-run properties. Our focus remains on well-located Class B and C deals in infill areas with strong demographics and manageable renovation requirements.

In Denver, the market is working through the absorption of recently delivered inventory. While headline distress is not yet visible, we expect that to change as more loans mature and owners face increased debt service requirements. For now, we are monitoring closely and maintaining dialogue with owners and brokers, particularly in the Class B and lower-quality A segments. Floating-rate loans and undercapitalized operators will likely present entry points later this year or in early 2026.

Salt Lake City is showing early signs of stress, particularly in outer-ring submarkets where recent deliveries have outpaced demand. Although transaction volume remains low, we are seeing growing misalignment between valuations and operational performance. Demographic trends in Salt Lake remain favorable, but investor caution has increased due to recent softness in rents and the increased cost of capital. We believe acquisition opportunities will emerge by late 2025 as distressed sellers are forced to meet the market.

Investment Strategy and Priorities

Across our core target markets, we are concentrating on distressed and underperforming Class B and C assets, particularly those built in the 1980s and early 2000s. These assets often suffer from deferred maintenance and management inefficiencies, but offer attractive upside through strategic capital improvements and operational turnaround. The current bid-ask gap is keeping many deals from clearing, but as lender pressure mounts and cash flow issues persist, we anticipate increased transaction velocity in the second half of 2025.

We continue to underwrite conservatively, focusing on intrinsic value and replacement cost metrics. Our underwriting emphasizes post-renovation yields, capital expenditure planning, and the ability to hold through volatility. Assets priced at a discount to 2022 values and located in supply-constrained infill markets remain our top priority.

San Antonio and DFW currently present the most attractive entry points for near-term deployment, with Austin and Salt Lake City requiring additional patience. Denver is firmly on our watchlist for late 2025 or early 2026 activity, pending further market softening

Looking Ahead

While transaction activity in the multifamily market remains constrained, the foundation is being laid for significant opportunity. Investors with conviction, flexibility, and local market insight will be best positioned to capitalize on the mispricing’s and distress that are gradually surfacing. At Platte Canyon Capital, we are actively engaging with lenders, brokers, and operating partners to identify actionable opportunities that align with our strategy. We expect the next twelve to eighteen months to be pivotal in setting the foundation for future returns.

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.

Feedback from the Capital Markets

By Nate Ricks

The whole team at Platte Canyon Capital is very excited about the recent closing of Allure (268 units) in San Antonio. The equity for this deal was not easy to raise; we faced a highly uncertain market, exacerbated by the ongoing tariff roller coaster. However, the market seems to be making a shift that spells good news for the industry.

Since we began raising capital for this deal back in March, we have noticed two things. First, the debt market continues to be eager to deploy capital. This was evidenced by the positive reaction we received after taking this deal out to the broader market. We received significant immediate interest and were able to push for terms that would have been difficult to achieve 12 months ago. Second, the equity “herd mentality” of the 1990s, 2000s, and newer vintages seems to be slowly shifting.

We have a lot of conviction around 1980s products right now. When we took Allure (a 1984/2017 vintage) to market, we expected many groups to view it as a 2017 deal with an 80s component. We learned that almost everyone viewed it as an 80s deal with a 2017 component. This made raising equity challenging, but through the process, we noticed that more groups were open to the vintage, whereas six months ago, it would have been an immediate “pass.” We also learned that equity interested in this vintage is targeting a minimum yield-on-cost of +8%.

Debt Markets

The Federal Reserve is locked in on a “wait and see” approach, and the debt markets continue to be frothy as lenders are eager to deploy capital. We saw evidence of this in the first quarter and continue to see it today. Tariffs have been a central driver of current market behavior, adding a layer of uncertainty to inflation forecasts and, consequently, monetary policy. While the Fed is holding rates steady for now, they are closely reassessing the economic data, with many analysts watching for their September meeting for any potential shifts.

This cautious yet accommodative stance from lenders is reflected in recent pricing. The U.S. 10-year Treasury yield has recently climbed above 4.4%, its highest point since mid-June, reflecting ongoing concerns about inflation and the potential for delayed rate cuts. Despite the uncertainty, we have seen attractive debt fund pricing, with recent quotes at SOFR + 290 and 5-Year Treasury + 150 basis points on agency debt. This indicates that despite the macroeconomic uncertainties, liquidity remains strong in the debt space for well-structured deals.

The current market presents a landscape of cautious optimism. While macroeconomic headwinds, particularly from tariffs, continue to create uncertainty, the capital markets are showing signs of favorable shifts for discerning investors. The eagerness of debt providers to deploy capital, coupled with a potential broadening of equity appetite for older vintage, creates a compelling opportunity for value-add projects like Allure. By focusing on fundamentally strong assets and leveraging the available liquidity in the debt markets, we believe there is a clear path to navigate the present uncertainty and deliver strong returns. The key will be to remain disciplined in our underwriting to capitalize on these evolving market dynamics.

Feedback from the Capital Markets

By Nate Ricks

The capital markets coming out of Q1 remain challenging and, with the introduction of tariffs, much more volatile. After attending NMHC and IMN, my takeaway was one of cautious optimism for 2025 – a similar sentiment to last year. While the precise effects of the tariffs on the multifamily market are still unclear, we believe that this year will present some very attractive buying opportunities. There is considerable noise in the markets right now, and while separating signal from noise is difficult, we continue to focus on the fundamentals: conservatively underwriting quality assets in growing markets.

Equity Market

We are actively raising equity on a distressed deal in San Antonio 1984/2017 vintage – +27% IRR /1.97x EM / 8.30% Untrended Yield on Cost / $85k per unit / ~$11.9M equity check – reach out if this might be of interest.

Over the last 60 days, we have spoken with over 50 institutional groups, and while feedback has varied, several consistent themes have emerged:

• There continues to be hesitancy surrounding older product, particularly pre-1990s vintage assets. The market sentiment has significantly shifted away from this vintage. While this pendulum will eventually swing back, securing equity for older assets remains challenging today. It is worth noting, however, that some of the most compelling opportunities we are currently seeing are 1980s properties.
• Distressed assets remain a primary focus for many groups. While the desire for distressed assets is widespread, many investors are hesitant about the inherent challenges. They often seek “distressed” in name only, and shy away when the profile includes significant construction or lease-up risk, despite an attractive basis and compelling narrative.
• Heavy Value-Add is a difficult profile to sell in the current market. While vintage, market story, and rent growth in specific areas certainly play a role, this warrants discussion. Value-add today is significantly different from what it was 2-3 years ago. Rent growth has remained muted across many of our target markets, making heavy value-add acquisitions difficult to justify. As new construction slows, this dynamic will likely shift as rent growth recovers.
• Return profiles have adjusted since Q4. Opportunistic groups are still targeting IRRs above 20%, and Core-Plus groups are aiming for mid- to high-teen returns. However, the benchmark for Untrended Yield on Cost (UYOC) has shifted. In Q4, discussions revolved around a 6.5% UYOC for newer stabilized assets and +7% for Value-Add/distressed deals. Today, we are engaging with groups targeting 7.5-8% UYOC on value-add/distressed opportunities This emphasizes the need to focus on buying quality properties at a great basis at today’s rents. This metric remains a key consideration for both investors and us as operators when evaluating different opportunities.

Debt Market

Turning to the debt fund markets, they are exhibiting a level of activity we haven’t seen in quite some time. Pricing has become considerably more attractive on both debt fund and agency terms. A recent discussion with a major brokerage group indicated that groups are moving off the sidelines, and operators are receiving multiple term sheets. Sixty days ago, we were seeing debt fund pricing inside of SOFR + 300 and 5-Year Treasury + 150 on agency quotes. Today, as the volatility stemming from tariffs continues to create market turbulence, that spread has widened by 25-50 basis points. Encouragingly, we have not heard of lenders rescinding term sheets, giving us confidence that while spreads have temporarily widened, lenders remain eager to deploy capital. As the markets eventually stabilize, we anticipate these spreads will once again tighten.

Recent Pricing Quotes (Pre Tariff Volatility)

Debt Fund

• Term: 36 months
• Interest Only: Full Term
• Rate: SOFR + 275
• LTV: 75%

Agency

• Term: 60 months
• Interest only: Full Term
• Rate: 5 YR Treasury + 151
• LTV: 65%

In navigating this evolving landscape, our commitment remains steadfast: to leverage our deep market knowledge and disciplined underwriting to identify and capitalize on compelling investment opportunities. We believe that our focus on fundamental value and proactive approach will position us to deliver strong results for our partners throughout the remainder of 2025 and beyond.

Feedback from the Pipeline

By Hunter Graul

The multifamily real estate markets in Texas, Colorado, and Utah are exhibiting varying dynamics in Q1 2025, shaped by supply trends, transaction activity, and investor sentiment. While some markets are showing resilience with steady deal flow, others face liquidity constraints, distress opportunities, and valuation uncertainties. Below, we provide a data-driven breakdown of the current state of these markets, highlighting transaction volumes, new supply pipelines, and evolving investor appetite.

Austin, TX: Market Saturation & Transaction Slowdown

• Transaction Pipeline: Down 40% YoY, with liquidity challenges across all asset classes.
• New Supply: Over 18,500 units delivered in 2024, with another 15,000+ units expected in 2025—surpassing demand growth.
• Rent Trends: Negative rent growth of -2.8% YoY as landlords increase concessions to attract tenants.
• Investor Sentiment: Hesitant, particularly for Class B and C assets, which are struggling to attract buyers.

Austin’s multifamily market remains oversupplied, particularly in the class A segment, leading to rising vacancy rates (currently hovering around 14% in some submarkets). Transaction volume has declined significantly as buyers and sellers struggle to align on pricing. The few deals closing are mostly newer Class A properties, with older assets seeing minimal interest due to rent stagnation and increased capital expenditure requirements. The short-term outlook suggests continued distress, with potential value-add opportunities emerging in mid-to-late 2025 as pricing adjusts and we work through the oversupply.

Dallas-Fort Worth, TX: Steady Activity Amidst Balanced Growth

• Transaction Pipeline: Moderate but stable—one of the most active U.S. multifamily markets.
• New Supply: 22,000 units delivered in 2024, with 19,000 units planned for 2025, but absorption rates remain above 80% due to strong in-migration.
• Rent Trends: Positive rent growth of 1.9% YoY, supported by job expansion and population growth.
• Investor Sentiment: Remains strong, particularly for stabilized Class A and value-add Class B assets.

Dallas-Fort Worth continues to attract investors due to its diverse economy, population influx, and relative affordability. While the metro is supply-heavy, its pace of deliveries is more manageable compared to Austin and San Antonio. Cap rates range from 5% to 5.5% for institutional-quality properties, with suburban submarkets such as Frisco, McKinney, and North Fort Worth drawing increased investor attention and stiff competition.

San Antonio, TX: High Distress Levels, Especially in Class B & C Segments

Transaction Pipeline: Up nearly 30% YoY, driven by distressed sales.
New Supply: 6,845 units under construction (down 29% from the 10-year average), signaling a cooling in development.
Rent Trends: Flat YoY growth due to absorption struggles.
Investor Sentiment: Active interest in distressed Class B and C properties, as well as opportunities to acquire Class A assets below replacement cost.

San Antonio has emerged as a leading market for distressed multifamily opportunities. Investors have shown interest in acquiring Class A properties at 15-25% discounts from peak valuations, while Class B and C assets face the most pressure. Occupancy rates in some submarkets have dipped below 90%, leading to lender pressure and forced sales. Given the pricing dislocation, we see an opportunity to capitalize on distressed deals in Q2 2025, particularly in areas where absorption is expected to stabilize.

Salt Lake City, UT: Controlled Growth & Limited Distress

• Transaction Pipeline: Minimal activity, reflecting a more balanced market.
• New Supply: 4,100 units expected in 2025, in line with the 10-year average.
• Rent Trends: 2.5% projected rent growth for 2025, driven by economic stability.
• Investor Sentiment: Neutral—few distressed opportunities but steady long-term fundamentals.

Unlike other high-growth metros, Salt Lake City did not experience an extreme construction boom during 2021-2022, leading to a more balanced supply-demand environment today. The market remains relatively stable, with rent growth expected to reach 2.5% in 2025 and occupancy rates holding at 92-93%. Submarkets like Holladay and Sugar House are seeing the strongest rent growth (4-5% YoY). While distressed opportunities are rare, well-located assets with steady cash flow remain attractive for long-term investors.

Denver, CO: Institutional-Quality Focus & Older Asset Liquidity Challenges

• Transaction Pipeline: Limited activity, mostly concentrated in newer institutional-quality properties.
• New Supply: 10,500 units delivered in 2024, with 2025 construction starts down 20% YoY—easing future supply pressure.
• Rent Trends: -2.59% rent decline YoY, with stabilization expected in H2 2025.
• Investor Sentiment: Flight to quality, with investors favoring post-1990s properties over aging assets.

Denver’s multifamily market remains bifurcated: newer institutional-quality properties continue to attract investor interest, while pre-1990s assets face liquidity challenges. Older properties are struggling to trade, as capital expenditures and insurance costs erode investor returns. Despite short-term challenges, long-term fundamentals remain strong, with suburban areas like Lakewood and Aurora showing resilience due to affordability.

Key Investment Takeaways & Opportunities

Austin & San Antonio: Prime Targets for Distressed Acquisitions (Q2 2025 & Beyond)

• High supply levels and rent stagnation will force further price corrections.
• Class B and C assets offer the best value-add opportunities at attractive discounts well below replacement cost.

Dallas-Fort Worth: Stability & Consistency

• One of the most active multifamily markets, supported by population and job growth.
• Best opportunities in suburban submarkets with steady demand

Denver: Institutional Buyers Favor Newer Assets

• Older properties are becoming illiquid, but post-1990s assets continue to trade.
• Suburban markets with lower vacancy rates present better risk-adjusted opportunities.

Salt Lake City: Limited Distress but Solid Long-Term Play

• Few distressed sales, but strong fundamentals make it a reliable market for long-term investors.

Distressed Market Considerations:

• Cap rates are generally in the low-to-mid 5% range, but liquidity is limited for older properties.
• The bid-ask spread remains wide due to lender reluctance to accept deep discounts. However creative workout and restructuring are on the table.
• Opportunistic investors should closely watch distress-driven price adjustments in late 2025.

Final Outlook

The Q1 2025 multifamily market landscape varies significantly across these metros. Distress is rising but remains selective, with Austin and San Antonio showing the most forced sales, while Dallas and Salt Lake City remain relatively stable. Liquidity constraints for older properties are notable in Austin, Denver, and San Antonio, suggesting a continued flight to quality. Investors who can navigate valuation dislocations and lender workouts may find attractive long-term opportunities as price corrections materialize later in 2025.

Thoughts from PCC’s CIO

By Darren Hulick

The Platte Canyon Capital team kicked off 2025 by attending the NMHC conference in Las Vegas. During the event, we engaged in numerous insightful discussions with brokers, property managers, investors, and property owners, gaining valuable perspectives on current property performance and the types of properties investors are targeting this year. Throughout the first quarter, we have been actively underwriting A LOT of multifamily investment opportunities across Texas, Colorado, and Utah, revealing several key emerging themes.

Distressed Assets: Available but Undesirable

A prominent theme at NMHC was the strong appetite for distressed properties, particularly those available at or below their outstanding loan balances. This investment strategy is highly appealing in theory; however, the distressed properties that have come to market in Q1 are often characterized by low occupancy, high accounts payable, poorly maintained exteriors, and aging infrastructure—typically built before the 1980s.

This poses a challenge. While distressed assets present an intriguing investment thesis, they often fall outside the acquisition criteria of most institutional investors. The key question remains: at what point will cap rates on these older vintage properties reach a level attractive enough to draw institutional capital back into the market? Perhaps it will be when sellers align with market expectations, offering pricing that delivers buyers a 20%+ IRR using conservative operating assumptions and cap rates, and factoring in a comprehensive capex budget covering all major items such as new roofs, siding, windows, boilers, landscaping, and parking lot, etc.

Intense Competition for 1990s/2000s Vintage Assets

Given the declining investor interest in pre-1990s properties, there is now a concentrated focus on assets built in the 1990s and 2000s that still meet “value-add” investment criteria. This has led to compression in cap rates for these properties, with many buyers taking on negative leverage in anticipation of future rent growth as new supply pipelines diminish.
However, in markets still experiencing rent declines, achieving near-term positive leverage remains challenging. Investors are increasingly relying on the expectation that rents will rebound, yet the timing and extent of such growth remain somewhat uncertain.

Timing a Market Bottom: Identifying Opportunities Amid Uncertainty

We believe it is important to be able to acquire real estate throughout a market cycle by relying on conservative underwriting principals rooted in long-term statistical data. While acquiring assets at the bottom of a market cycle is an optimal strategy, accurately timing the market bottom can be a fool’s errand. That said, several data points suggest a potential recovery in multifamily asset values and fundamentals within the next 12 to 24 months:

• Supply pipelines have peaked, with deliveries over the past 12 months significantly exceeding expected deliveries for the next 12 months.
• Strong population growth in our target markets (Denver, Salt Lake City, Dallas, Austin and San Antonio).
• A massive drop in new construction starts across our target markets.
• Extremely conservative underwriting and a general reluctance to deploy capital.
• Rent forecasts in our target markets becoming less negative in early 2025, with expectations of positive rent growth by late 2025.
• Potential tariffs that may increase construction costs which could further limit new supply.

Despite these positive indicators, certain headwinds continue to contribute to investor hesitation:

• Historically high unit deliveries over the past year, with lease-up periods taking longer than usual, leading to an oversupply that still needs to be absorbed.
• Continued interest rate volatility, though there is increasing sentiment that rates will remain elevated for an extended period.
• Ongoing macroeconomic uncertainty.

As I noted above, timing a market bottom can be extremely difficult, but dollar cost averaging into and out of a market bottom, especially when you have a longer-term lens (5+ years) may be a more realistic approach that can also be a recipe for success.

By Brennen Degner

As we reflect on Q1 2025, the multifamily market feels like a continuation of the world we’ve been operating in for the better part of the last two years—punctuated by moments of optimism that quickly give way to more volatility. For all the narrative shifts and headlines, the underlying story hasn’t really changed: liquidity is still selective, cap rates are still floating, and capital is still cautious. But under the surface, we’re finally starting to see a new dynamic take hold—one that, if you know where to look, is presenting some of the clearest opportunities we’ve seen in a while.

Investor Preferences and the Concentration of Capital

The herd continues to concentrate in a narrow band of deals: newer assets at a discount to replacement cost and early 2000’s vintage properties that still have a light value-add story to tell. These are still trading, still liquid, and in some markets still closing at sub-5% cap rates. We continue to look at those too, but there’s nothing contrarian about it. Everyone wants to buy the clean, newer stuff.

Opportunity in Distressed and Overlooked Assets

Where we think the real opportunity is beginning to emerge is in the parts of the market that have been left for dead—the 1980s product, the tired B and C assets with some hair on them, and the growing set of forced-sale situations. This is where the valuation reset has been the most significant. And while many groups are still saying they’re looking for distressed deals, few are really stepping up when they actually see one. There’s a big difference between liking distress in theory and underwriting a broken 1980s deal with $5 million in capex and a 75% economic occupancy with conviction.

A Growing Gap Between Talk and Action

That gap between what people say they want and what they’re actually willing to buy is widening. Meanwhile, the REO and special servicing pipeline is growing, albeit slowly. We saw more in Q1 than we saw in all of 2024. Most of it is still in a holding pattern—lenders aren’t eager to take writedowns, but many more sellers seem fatigued and ready to capitulate. The deals that are trading are telling us a lot. Pricing is finally starting to reset. We’re seeing motivated sellers. And while that isn’t yet the norm, it feels like the early innings of a real shift.

Equity Sentiment and Conservative Underwriting

We’re also seeing this play out in real time with how equity is behaving. There’s strong interest in deals with a distressed component, but only when the business plan doesn’t rely on aggressive assumptions. Capital wants to be protected on the downside. Our underwriting has leaned into that since day one. We continue to use untrended return on cost as our north star—we’re not counting on exit cap compression or forecasting 6% rent growth. We’re buying based on what’s there today, and if the upside comes, great. But it’s not in the base case.

Return Targets and Deal Flow

We’re generally targeting a 6.5%+ untrended ROC on newer, cleaner deals and 7%+ on older or more complex deals. And we’re seeing enough opportunities that align that threshold to stay busy on the pipeline. But more importantly, we’re seeing the conditions for better pricing continue to fall into place—bid-ask spreads are still wide, but not as wide as they were six months ago. Debt is available again, with agency and debt fund pricing both coming in, and we’re hearing from lenders who are starting to move on problem loans.

A Market in Transition: Looking Ahead

We’re not claiming the bottom is here. Trying to call that is a fool’s game. But we are seeing enough signs to feel confident this year will offer some of the best risk-adjusted entry points we’ve seen in a long time. We’re also clear-eyed that not every distressed deal is a good one. Some of these assets are distressed for a reason, and we’re passing on a lot more than we’re pursuing. But the ones that do work—the deals where the bones are good and the basis is right—those are starting to surface.

Staying Disciplined as the Market Evolves

If this all sounds familiar, it should. The themes haven’t changed that much. What has changed is the increased willingness for some sellers and lenders (albeit few lenders) to meet the market. And as more groups reach that point, we expect to see real volume return. When that happens, the investors who stayed disciplined and stayed close to the deal flow are going to be the ones best positioned to move.

As always, we’ll keep our heads down, keep underwriting, and keep looking for the right price for real value. And when we find it, we’ll be ready to act.

Feedback from the Pipeline

By Hunter Graul

The multifamily real estate markets in Texas, Colorado, and Utah are currently exhibiting a range of pipeline dynamics, each shaped by unique local factors.

In Austin and San Antonio, we’ve observed a significant contraction in transaction pipelines. The surge in new supply has led to negative rent trends, causing liquidity to dry up. Deals, especially in the Class B and C segments, are scarce and seldom reach closing. This slowdown is largely attributed to the record levels of new construction saturating the market, leading to an oversupply that suppresses rental growth and investor interest. The limited activity that does occur is primarily confined to newer property transactions, with older assets struggling to attract attention.

Conversely, Dallas maintains a stable flow of opportunities. Although it’s a supply-heavy market, the proportionate increase relative to existing housing stock is more moderate compared to Austin and San Antonio. This balance has resulted in consistent investment activity, with transactions continuing at a steady pace. The market’s resilience can be attributed to its diversified economy and steady population growth, which continue to drive demand for multifamily housing. Investors find Dallas appealing due to its relative stability and the ongoing opportunities for both acquisition and development.

In Denver, the market presents a steady pipeline encompassing both older and newer properties. Assets predating the 1990s face liquidity challenges and infrequent closures, whereas properties from the 1990s onward encounter a competitive landscape. The city’s strong economic fundamentals and quality of life continue to attract residents, sustaining demand for multifamily housing. However, the older stock’s liquidity issues highlight a broader trend of investor preference for newer, lower-risk assets in uncertain times.

Salt Lake City, however, is experiencing a sluggish pipeline, with only a handful of deals under observation. The absence of a significant surge during 2021 and 2022 suggests that this market may experience limited distress moving forward. The city’s steady economic performance and controlled development pipeline have resulted in a more balanced market, with less volatility and fewer distressed opportunities compared to more rapidly expanding metros.

Overall, there’s a noticeable increase in distressed opportunities, though not in overwhelming numbers. A significant challenge within this segment is the disparity between property values and distressed loan amounts, leading to lender reluctance in accepting losses. This situation often results in a stalemate, despite active pursuit of these opportunities. The gridlock in the distressed market underscores the complexities of navigating workouts and restructurings in the current environment.

Valuation metrics indicate that transactions are generally occurring at capitalization rates in the low to mid-5% range. However, data on post-1990s vintages is limited, rendering the cap rate landscape for 1980s properties relatively opaque. Moreover, assets from the 1980s and earlier are approaching a state of illiquidity in the current market. This trend reflects investor caution and a flight to quality, with capital gravitating towards newer, more resilient assets that are better positioned to withstand economic fluctuations.

In summary, while certain markets exhibit resilience and ongoing activity, others face significant slowdowns. The rise in distressed assets presents potential opportunities, yet challenges persist due to valuation disparities and lender positions. A nuanced understanding of each market’s unique conditions remains essential for strategic investment decisions. Investors must remain vigilant, adapting their strategies to the evolving landscape to identify and capitalize on opportunities that align with their risk tolerance and return objectives.

Feedback from the Capital Markets

By Nate Ricks

Multifamily real estate capital markets continue to experience notable shifts in investor preferences and funding dynamics. Allocators are increasingly focusing on newer vintage properties, particularly those built in the 1990s or later. This shift reflects a strategic move to balance risk and return by targeting properties that require fewer capital expenditures. Additionally, there is a continued emphasis on untrended yield on cost as a critical metric, underscoring investors’ desire for stable, immediate returns without relying on projected rent growth or market appreciation.

After speaking with several large institutional funds over the last quarter, many are targeting a minimum untrended yield on cost of ~6.5%. Moreover, these groups have indicated that for Core Plus projects, returns must reach mid-teens IRRs, and for more opportunistic deals, returns need to exceed 20% IRRs.

Equity investors are eager to deploy capital within these metrics. A recent shift from the first half of 2024 shows a stronger emphasis on underwriting submarket-specific growth metrics after 2025 rather than adhering to conservative 0% to 1% growth assumptions. This shift reflects data suggesting that much of the new supply coming to market in 2025 will be absorbed by 2026. This updated guidance is helping us refine both our target deals and our underwriting approaches.

On the financing front, the debt market remains challenging, especially for deals that don’t fit the conventional mold. Lenders are exhibiting caution, favoring “right down the fairway” transactions that present clear, manageable risks. This conservative stance makes it difficult for more complex or unconventional deals to secure debt financing. As a result, investors and developers may need to explore alternative financing structures or bring additional equity to the table to move projects forward in this constrained lending environment.