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.