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.