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.