Feedback from the Capital Markets

By Nate Ricks

We believe the current environment continues to reward disciplined, fundamentals-driven investing in multifamily. Liquidity is improving at the margin, yet underwriting remains exacting: equity is emphasizing untrended yield on cost and credible paths to mid-teens net IRRs, while lenders favor straightforward, well-covered business plans with conservative leverage. That balance—incrementally looser markets but persistent discipline—shaped our sourcing, bid posture, and partnership dialogues throughout the end of the year.

Market Overview

Transaction pipelines picked up following Labor Day, with brokers noting greater post-summer activity across Texas and select Mountain West metros even as regulatory headwinds slowed Denver. Equity groups were “on the offensive,” but remained selective by submarket, vintage, and business-plan clarity. On the debt side, agencies stayed active where affordability components exist; banks leaned into relationship lending at ~55–60% LTV; and debt funds competed on speed and structure, with floors in the ~SOFR +215–260 bps range (lower on larger tickets). Life companies stayed cookie-cutter at roughly T+160 and higher coverage, often avoiding pre-2000s vintages unless leverage was very low.

Equity Sentiment

Across our conversations this quarter, allocators reiterated clear hurdles: untrended YOC thresholds typically in the mid-6% to low-7% range by vintage, mid-teens net IRR for Core Plus, and high-teens to 20%+ for more opportunistic profiles. Groups with flexible mandates and strong operator alignment leaned into light value-add in 1990s+ product—and, selectively, into 1980s assets where basis, differentiation, and capex clarity support a 7%+ untrended YOC. The common denominator: straightforward deals with good stories, credible submarket growth outlook, and conservative exit caps.
Notably, some funds that earlier in the year red-lined San Antonio signaled conditional openness at the right basis and with resilient employment drivers, while others remain cautious given delinquency and limited trade activity. Dallas continues to draw capital despite tight cap rates, supported by expectations of supply tapering and rent normalization into 2026–2027. Houston saw consistent buyer activity, particularly for 1990s+ assets.

Debt Markets

We continue to see competitive quotes for well-covered, value-add execution. Banks are active but relationship-driven, often pairing low leverage with deposit expectations; debt funds will execute at 60–70% leverage on value-add projects; agencies remain a dependable backstop when affordability or mission fit applies. Intermediaries report more “hand-holding” across deals—reflecting lender selectivity rather than an absence of capital.

Regional Color

Within Texas, buyers gravitated to Dallas‐Fort Worth and Houston for 1990s+ garden and suburban infill. San Antonio underwriting continues to require a wider pricing spread and demonstrable occupancy and trade-out momentum; operators with crisp expense control and delinquency management have a clearer path to capital. In the Mountain West, Salt Lake City and select secondary markets drew interest for off-market 1990s deals with 9’ ceilings and credible cash-on-cash ramps.

What Investors Are Paying For

• Untrended Yield on Cost: High-6s to ~7%+ for 1980s vintage; low-6s to mid-6s for 1990s+ depending on submarket and value-add scope. Multiple groups flagged 7% as a psychological floor for older stock absent unique differentiation.
• Return Targets: Mid-teens net IRR for Core Plus; high-teens to 20%+ where heavier value-creation is underwritten; several funds emphasized exit caps above fixed-rate debt and conservative rent/expense growth.
• Deal Qualities: Focus on a strong basis and good stories.

How We Are Positioned

We remain oriented toward resilient, cash-flowing assets with conservative leverage and clear operational levers—targeting value-add where submarket absorption and expense discipline can support a path to ~7% untrended YOC on older vintages and mid-6s on 1990s+ product. That posture reflects our core principles—integrity, excellence in execution, and disciplined decision-making—applied consistently through the cycle.

Our team continues to execute a rigorous, relationship-first equity process: systematic qualification of partners, multi-channel outreach, and data-driven tracking from first touch to commitment. This framework remains essential as capital re-engages—we do not assume a broad thaw; we prepare for disciplined capital to move quickly when the story is right.

Outlook

We believe the balance of 2025 will continue to favor investors who pair patience with readiness. Supply dynamics should improve progressively into 2026, and we are observing a healthier bid-ask dialogue where basis, business-plan clarity, and cash-flow resilience carry the day. Our pipeline reflects that reality, and we will lean into opportunities where underwriting meets our thresholds and partnership alignment is strong.